Global ABS: Enough Data in European DataWarehouse?

The European DataWarehouse came in for some criticism at Information Management Network’s and Association for Financial Markets in Europe’s Global ABS 2012 conference, which is being held in Brussels this week.

The European Central Bank (ECB) has made loan-level data part of the requirement for accepting ABS as collateral for financing, and this information repository allows issuers to submit the data electronically using report templates developed by the central bank.

Fernando Gonzalez, head of risk strategy section in risk management at the ECB, said that the central bank is currently in full implementation phase, with the database expected to be operational by December 2012.

Gonzalez said the ECB is not going to make tweaks to the data templates right away because it needs to determine what needs to be improved first. However, the database is expected to change over time and will eventually allow historical data to be incorporated.

The primary concern raised during the panel was whether investors will have enough data through the warehouse to model deal cashflows. Panelists also questioned whether the key drivers of defaults are reflected in the available information and if the expected losses in the event of a default can be modeled using the information from the DataWarehouse.

At the onset, there are various limitations, acknowledged David Colling, a senior manager at Sapient Global Markets, which created the DataWarehouse. He said that not all data points will be available since they are restricted by privacy issues in the different European jurisdictions.

Panelists also noted that it is a post-crisis database, so there might be no basis yet for knowing how a loan originated today would look like had it been originated during the crisis.

There is also the question of how clean the data would be. Henry Cooke, investment manager at Threadneedle, said there have been some “glaring anomalies” in loan data used in the past. “We have spent an enormous amount of time cleaning up data,” he said.

The bottom line is that investors have to work with the information provided by the database. James Watkins, a managing director at BlackRock, said he has always taken a bottom up approach in modelling deal performance, although he overlays the data with his own assumptions on different factors such as defaults.

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